New transfer taxes will align Russia with others

Russia is considering following other countries in tightening up regulations on transfer pricing, the tax companies have to pay when they move products from one division to another, like from a production plant to a Central Office.

The issue has topped the agenda at a meeting of financial directors, organised by the Association of European Businesses in Russia.

A draft law on transfer pricing has been under discussion for several years, but market watchers say it is finally likely to come into force early next year.

“We are seeing at the moment local tax authorities challenging transfer prices sometimes based on ridiculous arguments, just to create revenue basically, at least that's my very personal view. And the arguments are very difficult and unpredictable for companies to know when and why they will be challenged” commented Stephan Beck, tax partner at Ernst & Young.

Russia's transfer pricing legislation will be helpful for companies like Volkswagen, since it will align Russian practices more closely with other economies.

“It brings the same rules to the market, and I see it absolutely as a positive thing at this moment. It will give us – in the whole industry – a more comparable business base for companies which are coming from outside of Russia,” comments Jan Vycital, Volkswagen Russia, Finance Director.